In the Year of The Stakeholder: Where Does Board Oversight Begin?
Dear Friend,
This year is shaping up to be the year where stakeholders grow in prominence. Environmental, Social and Governance (ESG) remains a hot topic, with disclosures around climate, sustainability and human capital management included in most proxies. From COVID to social justice challenges, the “S” in ESG continues to be magnified. To that end, defining, measuring, and disclosing diversity, equity and inclusion (DEI) is moving beyond a trend to a best practice.
In fact, Farient Advisors’ preliminary review of 2021 S&P 500 proxies reinforces this increase and highlights that more than 25% of companies have a DEI component in their executive pay plans. And, as proxy season progresses, we expect the percentage will become more pronounced.
Clearly, ESG is now top of mind for every board, executive, stakeholder and regulator. Based on our recent research: 2021 and Beyond: Global Trends in Stakeholder Incentives, more companies are “walking the talk” to ensure the financial, emotional and physical well-being of stakeholders. Boards have stepped up to provide the right oversight to ensure that appropriate measures and reporting mechanisms are in place. Large investors like BlackRock, State Street and Vanguard are sending clear messages with updates to their respective voting guidelines that advise: “Failure to exercise proper oversight of ESG (climate, DEI and other areas) will negatively impact Say on Pay and Director votes in coming years.”
Beyond investor demands, doing the right thing around stakeholder strategy has become a critical role of the board. As the board provides more oversight and accountability, the Compensation Committee’s purview continues to broaden and now may include all aspects of talent, health and safety, pay equity and social considerations. We have seen Compensation Committees expand their charters and change their names to “Talent Management and Compensation Committee,” “Leadership Development and Compensation Committee,” and “Organizational Development Committee” among others to reflect their evolving responsibilities.
Stakeholder prominence will continue to gain traction across the ESG and disclosure spectrum. The confirmation of Gary Gensler as the new Securities and Exchange Commission (SEC) chairman begins a new chapter in governance and oversight. As certain as we can be about areas like death and taxes, get ready, as we expect more rules and disclosures are on the horizon.
Sincerely,
R.J. Bannister
Hot Off The Press From Farient
Board Oversight of Stakeholder Strategies
Companies around the world are including “stakeholder” considerations in their strategy and culture. In my recent Farient blog, I examine stakeholder prominence and the two fundamental questions every company should consider.
The COVID-19 pandemic continues to impact all aspects of business, and executive pay is no exception. To help boards navigate the shifting landscape, Farient Advisors launches our COVID Tracker™—a new proprietary tool that captures the changes to executive and board of director compensation for the S&P 500 and S&P MidCap 400.
ESG Metrics ‘Biggest Change to Comp Plans in Decades’
This proxy season, several companies are introducing ESG goals linked to executive compensation. In an interview with Agenda Week, Farient Advisors’ CEO Robin Ferracone explains why these companies are erring on the side of caution when including ESG metrics in incentives plans.
In this IR Magazine feature, Robin Ferracone looks at how boards and compensation committees can align ESG metrics to executive compensation without producing inauthentic links. “Investors are going to start asking more often for progress on ESG,” she says. “Combine that interest with the effects of COVID-19 and the SEC asking companies to enhance their human capital management disclosures and companies will need to tell more of a story about how they’re thinking regarding ESG integration.”
June 8, 2021: National Association of Corporate Directors (NACD) Carolinas: Disruption and the Art of Adaptation: Proxy Season 2021 Recap
As we reflect on 2020, what has remained the same and what has changed? How has this proxy season focused on human capital management, compensation program design and disclosure? How have companies responded to these challenges and what will things look like in 2021 and beyond? Join Farient Advisors and Fortune 500 Compensation Committee members for a deep dive on this year’s proxy season. NACD members can register by clicking below. If you are not a NACD member and would like to join, please contact us at info@farient.com.
June 24, 2021: HCM International Presents The Compensation Committee Circle, The Compensation Committee’s Role in Creating a Diverse and Inclusive Culture
DEI are now top priorities for boards of directors. No corner of the world has been spared from the impact of COVID-19. Board members in every geography and industry continue to step up and do the right things for all stakeholders. In this session, HCM and Global Governance and Executive Compensation Group (GECN Group) partners from the U.S. (Farient Advisors), U.K. (MM&K), and South Africa (Century 21), join Switzerland-based HCM to explore the evolving global landscape of diversity and inclusion, and the expanding role of the Compensation Committee in fostering stakeholder prominence across the ESG spectrum. For additional information, contact us at info@farient.com.
RJ is a Partner and our Chief Operating Officer. He has 30 years of experience in consulting to the S&P 1500 and large private companies as the named Executive Compensation consultant representing either the Compensation Committee or Management, and sometimes both parties. RJ is frequently quoted in several business and industry publications including: The Wall Street Journal, Bloomberg, and Agenda, among others. Learn more about RJ.
About Farient
Farient Advisors LLC is an independent executive compensation, performance and corporate governance consultancy. Farient provides a comprehensive array of services to boards of directors and management, including compensation program design, performance measurement and goal-setting, pay and performance alignment, board of directors’ compensation and shareholder communications, among others. Farient is located in Los Angeles, New York, Louisville and Dallas and is a founding partner of the Global Governance and Executive Compensation Group (GECN Group), serving clients throughout the world. Farient is recognized by the Women’s Business Enterprise National Council as a certified diverse company.
Farient Advisors, 55 E. 59th Street, Suite 12B, New York, NY 10022
